The primary judge's findings about Mr Kleyn's evidence
40 After recounting the evidence of numerous other witnesses (including Mr Barker) the primary judge returned to Mr Kleyn's evidence at [615] here his Honour said this:
Coretell says that its lay witnesses, Mr Kleyn, Mr Barker, Mr Maher and Mr Reynolds, gave their evidence honestly and credibly. It says that while Mr Kleyn became terse with the cross-examiner in the witness box, that should not detract from his integrity or his honesty and it is understandable that he found himself in an emotional position, having been engaged in seven years of litigation by the applicants. I will return to Mr Kleyn's evidence below when dealing with primary factual questions, but largely I accept these observations about his evidence made on behalf of Coretell.
41 Coretell would have it that this means that the primary judge must be taken to have accepted Mr Kleyn's evidence as summarised in the reasons. Given what follows in the judgment we do not consider that [615] can be read in this way. At most, it means that, at least at this point, the primary judge considered that Mr Kleyn was giving honest evidence to the best of his ability, eight years after the events, and in trying circumstances. This must be so because, as should be apparent from the discussion above, if there is one thing that was clear in Mr Kleyn's evidence it was his belief that the Camteq tool was ready for commercial exploitation before the first threat letter was received in November 2006. The primary judge, however, rejected this evidence. At [651] his Honour said:
… taking into account the evidence concerning trialling of the tool in the field, canvassed above, Mr Barker's evidence and Mr Kleyn's evidence - all pointing to more work requiring to be done on the tool - I do not accept that the tool was, in fact, ready for market towards the end of 2006 when the first threat letter was received.
42 Having not accepted that proposition, it necessarily followed that the primary judge also (implicitly at least) rejected Mr Kleyn's evidence that Coretell, on receiving the first threat letter, "discontinued all further marketing and general supply of the Coretell orientation tool". In other words, in [651] the primary judge decided that Coretell's case theory could not be accepted. His Honour did not explore the consequences of this immediately in his reasons, moving instead to an issue which loomed large before him, whether Mincrest had effectively assigned its interests in the Camteq tool to Coretell (which is an issue we have treated as subsidiary in this appeal).
43 In dealing with the assignment issue, the primary judge made some observations which would be relevant to any consideration of the consequences for Coretell of his Honour's rejection of its case theory, based on Mr Kleyn's evidence that it had a commercially viable Camteq tool ready to supply by November 2006 and ceased the marketing and supply of that tool due to the threats. These observations included:
(1) "It must be said that following the threat letters, or at least soon after the first of the threat letters, there can be little doubt that Coretell was quite active, as submitted by Coretell, in pursuing the business formally in its name" (at [687]).
(2) "The evidence plainly indicates that certainly from the time of the threat letters onwards, Coretell traded in the Camteq tool in its developmental stages and ran a start-up business in respect of it" (at [705]).
(3) "On the evidence in this Court, I am satisfied, on the balance of probabilities, that Coretell, at material times, held a material interest which it exploited alone in the Camteq tool, in its developmental stages, as part of a start-up business, when the threat letters were received" (at [706]).
44 The primary judge then returned to his assessment of Mr Kleyn's evidence. Having rejected the entire thrust of Mr Kleyn's evidence that he had a commercially viable tool ready for supply as at November 2006 when the first threat letter was received, his Honour said this at [743]:
… having regard to the evidence of the witnesses called by the applicants concerning the performance of that tool in the field, which I have outlined and made findings about above, as well as Mr Kleyn's own evidence, especially his subsequent actions in calling Mr Barker off its production and later contracting for the design and production of the Procept tool, I am not satisfied the Camteq tool was in fact finally ready for the market as of the end of 2006 and soon after, and at the time the three threat letters were received, and this was recognised by Mr Kleyn.
45 This finding goes beyond that at [651] because the primary judge is concluding not only that the Camteq tool was not ready for commercial supply as at November 2006, but that Mr Kleyn knew it was not ready. How this might be reconciled with the more general finding at [615] about Mr Kleyn giving his evidence honestly may be a nice question but need not detain us. The point is that these findings are irreconcilable with any suggestion that the primary judge accepted Mr Kleyn's evidence as recounted at [24] to [226] at least insofar as that evidence had anything to do with the Camteq tool being ready for commercial supply (as opposed to trial and testing) as at November 2006 and Mr Kleyn having ceased such supply as a result of the first threat letter.
46 At [744] the primary judge said:
That does not mean, however, that Coretell did not then have a "business" in the tool. Plainly, Mr Kleyn was working hard to perfect the tool and hire it out at material times.
47 Under the heading "Was the Camteq tool of merchantable quality at material times?", which was issue (4) in the primary judge's list of issues at [19], these paragraphs appear:
[745] As just concluded, save for the evidence of Mr Barker, the preponderance of the evidence suggests the Camteq tool was nearing a state in which it would be ready for, but was not yet ready for, market when the threat letters were received.
[746] I have found above that, while Mr Barker believed the tool he had designed and seen trialled was ready for market, the evidence of trialling in the field led by the applicants, and indeed Mr Kleyn's evidence overall, leads to a different conclusion. At the time of the threats, more work was required to bring the tool to a state in which it could be taken to market and hired out.
[747] That is not to say, however, that Coretell was not then in the business of marketing the prototype tool at that time and did not sustain damage as a result of receiving the threat letters, as discussed below.
[748] In my estimate, having regard to the time it took for the highly experienced and professionally capable Procept business and Mr Maher to design and produce the Procept tool with Mr Kleyn in 2009, and bearing in mind the lack of experience Mr Barker and Mr Kleyn had in developing such a tool by late 2006, and the problems they had experienced in perfecting it, and accepting that Mr Kleyn was a "driven" man who would have pressed hard to get the Camteq tool to market if he had not been impeded by the threat letters, as he later did with the Procept tool, I estimate the Camteq tool would have been ready for market about six months after the first threat letter, as of early June 2007.
48 As AMC submitted, there is a logical problem with these paragraphs. In short, the primary judge had found that the Camteq tool was not ready for commercial supply and that Mr Kleyn knew this as at November 2006, when he received the first threat letter. He had also found that Mr Kleyn was "working hard" to perfect the tool. This can only be a reference to the communications between Mr Kleyn and Mr Barker between December 2006 and July 2007 in which Mr Kleyn was trying to get Mr Barker to resolve the problems that were being experienced with the Camteq tool. Given this, it is not apparent how the Camteq tool could have been ready for market by June 2007 if Mr Kleyn had not been "impeded by the threat letters". The primary judge had not found any impedance by reason of the threat letters. Rather, he found that:
"Mr Kleyn was working hard to perfect the tool and hire it out at material times" (at [744]);
"Coretell was quite active, as submitted by Coretell, in pursuing the business formally in its name" (at 687]), it being remembered that Coretell was only incorporated on 25 May 2006; and
"… certainly from the time of the threat letters onwards, Coretell traded in the Camteq tool in its developmental stages and ran a start-up business in respect of it" (at [705]).
49 These findings, of course, are consistent with AMC's case theory that the Camteq tool was still in its developmental phase as at November 2006 and that, contrary to his denials, Mr Kleyn had continued to press Mr Barker between December 2006 and July 2007 to work out the problems with the Camteq tool so he would have a product suitable for commercial supply, never managed to get the Camteq tool to that final stage, and lost the services of Mr Barker after the proceedings had commenced, necessitating the approach to Procept, which refused to continue the development of the Camteq tool and instead designed a new tool, known as the Procept tool.
50 It is also not apparent why, having rejected Mr Kleyn's evidence that he did have a Camteq tool ready for commercial supply as at November 2006 and having found that contrary to his evidence Mr Kleyn knew the Camteq tool was not ready for commercial supply as at November 2006, the primary judge (implicitly at least, if [748] is taken in isolation and at face value) accepted the proposition that Mr Kleyn would have continued to develop the Camteq tool to a state of commercial readiness but for the threat letters. This was not Mr Kleyn's evidence as summarised by the primary judge. There is no suggestion in the primary judge's summary of Mr Kleyn's evidence that but for the threat letters he would have continued to develop the Camteq tool and it would have been ready by June 2007. It was Mr Kleyn's evidence, rejected by the primary judge, that the Camteq tool was already ready for commercial supply as at the time of the first threat letter.
51 The source of the counter-factual that, but for the threat letters, Coretell would have finalised development of the Camteq tool by June 2007 is not disclosed in his Honour's reasons other than by a reference to the "preponderance of the evidence" (at [745]) and the primary judge's own "estimate" (at [748]). Apart from the primary judge having undertaken his own estimate, there are two potential sources in the evidence for this counter-factual. The first is that Mr Meredith, the accountant, was instructed by Coretell to this effect. When dealing with the question of quantification of damage the primary judge recorded this:
[759] Mr Meredith added that in preparing GM2, he sought instructions about the merchantability of the Camteq tool and was instructed it was of merchantable quality as at 14 November 2006 (when the first threat letter was received) and July 2007 (when this proceeding was commenced).
[760] Mr Meredith further stated that to address an alternative scenario where the Court determines that there were merchantable quality issues with the Camteq tool as at 14 November 2006, he was instructed to provide an alternative opinion on Coretell's losses assuming Coretell would have taken no longer than three or six months (from 14 November 2006) to develop an entirely substitute tool of merchantable quality. He then expressed his opinion on those alternative scenarios at [55] of GM2. He there provided alternative profit and loss calculations respectively of $2,265,337 and $1,772,775 (from about 1 June 2007).
52 Of course, an expert acting on instructions is one thing. Proof of the existence of an instructed fact, matter or circumstance is another. Mr Meredith's report could not function as evidence rationally supporting any inference that the Camteq tool, if not ready for commercial supply as at November 2006, would have been ready by June 2007 but for the threats.
53 Nor could Mr Kleyn's evidence rationally support that inference and, he being the principal of Coretell, it is his evidence that counts. Mr Kleyn's evidence could not rationally support that inference because his evidence was that the Camteq tool was already ready for commercial supply as at November 2006 and the threats made him stop marketing and supplying the Camteq tool. Mr Kleyn refused to countenance the notion that the Camteq tool was still being developed after November 2006. There is no suggestion in the primary judge's summary of Mr Kleyn's evidence that Mr Kleyn stopped developing the Camteq tool as a result of the threat letters. The activities said to have ceased because of the threats are marketing and supply, not development. See the reasons for judgment at [64], [65], [68], [69] and [72]. Mr Kleyn, moreover, did not recall telling Mr Barker to cease manufacturing the Camteq tool (at [71]) and wanted Mr Barker to keep manufacturing the tool so that once the infringement proceedings were over Coretell would have "sufficient working tools to supply the market" (at [72]). All of this accords with Mr Kleyn's evidence, recorded by the primary judge at [207] to [212], about the emails between December 2006 and July 2007 where, leaving aside Mr Kleyn's denial that what was occurring was development work, he was urging Mr Barker to keep working on the Camteq tool (even if it was put to one side temporarily so that the camera could be completed).
54 While some of this may appear inconsistent with parts of Mr Barker's evidence, this is not necessarily so. At [279] the primary judge recorded that:
Mr Barker recalled that in around mid-November 2006, Mr Kleyn came into his office and told him that Imdex was claiming that their patent had been breached. He said Mr Kleyn said words to the effect that he had decided to cease hiring the orientation tool and focus primarily on the ProShot until he had taken legal advice. Mr Barker could not specifically recall, however, whether Coretell withdrew the tool from the sites where it was being used or hired at the time. He was not involved in that aspect of the business. He was told, however, to just focus on the camera for now.
55 This, no doubt, is the conversation Mr Kleyn could not recall having with Mr Barker at [71]. Even if Mr Barker's evidence was taken at its highest by the primary judge it does not suggest any impedance of the development of the Camteq tool. The communicated decision was not to cease developing the Camteq tool. It was that Mr Kleyn had decided to "cease hiring" the tool and wanted Mr Barker to focus on the camera until Mr Kleyn had taken legal advice. Whenever this conversation occurred, it is apparent from the emails between December 2006 and July 2007 that Mr Kleyn was pushing Mr Barker to finish the Camteq tool.
56 There is one piece of evidence to which the primary judge made no reference in reaching his conclusions about the counter-factual. In an affidavit of 31 October 2014 and in answer to evidence from Mr Ross, an accountant called by AMC, Mr Kleyn said this:
a. If there had been accuracy errors with the tools (such as that a batch of accelerometers did not work or give orientation data), I believe this problem would have been identified in bench testing against the stands and apparatus set by reference to the other orientation tools in Mincrest's stock. I believe this would have taken approximately 1 - 2 hours of testing, 2 hours of research to determine an appropriate alternate supplier for those components, 2 days to have that supply shipped to Orange Grove (as accelerometers are widely available pre-made components, like the other components on the Barker and Procept Tool circuit-boards) and approximately 2 hours to update several tools which were experiencing the identified problem. I accordingly believe that a tool issue such as inaccuracy would have been resolved in 1 - 2 weeks had such problem occurred; and
b. Moreover, if the tools were not rendering accurate orientation data by November 2006, I was aware that a number of electronics developers and manufacturers exist throughout Australia. As I had been working on the orientation tool for so long and invested substantial money, I would have briefed an alternate supplier immediately. Given my previous experience with Procept, I believe that it would have taken approximately three months for Procept or another supplier to develop a working core orientation tool. This was particularly so as I already had viable casings and battery housings ready for the circuit-board to be assembled into.
57 The primary judge did not refer to this evidence in his recounting of what his Honour described at [23] as the evidence "bearing on key factual issues". It assumes a state of affairs which the primary judge had rejected, namely that Coretell had a commercially viable tool but for a problem with the accuracy of the orientation data it provided. The primary judge rejected this proposition at [651] and [743]. It is also inconsistent with his Honour's subsequent description at [795], when dealing with certain assumptions the accountants made, that the Camteq tool had a "number of problems" which meant that it could not be commercially supplied. Moreover, it is contrary to what Mr Kleyn in fact did in circumstances where his Honour found that there was not a commercially viable tool as at November 2006. Despite being in a position worse than the very position he describes in this evidence (in that accuracy of orientation data was but one of the problems disclosed by the trials of the tool in the field), Mr Kleyn did not then immediately brief an alternative supplier. Even more tellingly, when he did deliver an alternative supplier, Procept, Procept insisted on designing a new tool from first principles rather than building off the work already carried out by Mr Barker. And to add to this, the arrangements with Procept and the completion of work by Procept took 11 months, from a meeting in February 2008 until April 2009 (see the reasons at [80] to [88]), to result in a working tool, the Procept tool, available for commercial supply.
58 Given this, if his Honour did have any regard to this evidence from Mr Kleyn the evidence could not provide a rational foundation for the conclusion that it would have taken 6 months for Coretell to finish development of the Camteq tool. Nor can any of the other evidence which Coretell sought to draw in aid provide such a rational foundation.
59 At [726] the primary judge accepted Coretell's evidence that it had supplied six tools to MTL Philippines. This may be accepted but the primary judge did not refer to that finding in the context of resolving the question when the Camteq tool might have been ready for commercial supply. His Honour made the finding, and referred to it, solely for the purpose of deciding that Coretell was in business when the threat letters were received, albeit (as the primary judge found) a nascent start-up business directed at developing a commercially viable tool, rather than a business of commercially supplying a viable tool. The primary judge's reasons do not attempt to resolve any potential inconsistency between the finding at [726] (that "Coretell's submissions concerning the fact of the order, payment and the fact of the delivery to MTL Philippines of the tool, should be accepted") and the finding at [743] (that "I am not satisfied the Camteq tool was in fact finally ready for the market as of the end of 2006 and soon after, and at the time the three threat letters were received, and this was recognised by Mr Kleyn") although, on their face, the findings are irreconcilable. Given the strength of his Honour's findings against the proposition that the Camteq tool was ready for commercial supply as at November 2006, the only apparent resolution of this inconsistency which is open is that, whatever its significance, the supply to MTL Philippines did not mean that the Camteq tool was a commercially viable proposition when it was supplied because it had not been finally developed as a functioning unit. This, it should be noted, is supported by some other evidence, also not referred to by the primary judge, in which Mr Kleyn told Mr Barker in the email of 20 December 2006 that the approximately $60,000 paid by MTL Philippines had to be preserved because it might have to be repaid in the context that, as Mr Kleyn there said, he was not confident there would be a working tool by January 2007. For these reasons, the supply to MTL Philippines could not provide a rational foundation for the inference that the tool would have been ready within 6 months but for the threats.
60 Coretell also referred to the dealings with Silver City to which the primary judge referred at [65] to [69]. This is not a matter to which the primary judge referred in reaching his conclusion that the Camteq tool would have been developed within six months of the first threat letter. Had the primary judge considered this matter relevant, it would have been necessary to resolve a number of other inconsistencies about this event. In particular, Mr Kleyn said that although he told Silver City the tool had technical problems this was not true (at [68]). His Honour, of course, found that the tool did have problems so it may be inferred he rejected this part of Mr Kleyn's evidence. Further, Mr Kleyn's email of 22 December 2006 referred to Silver City having returned tools which were not working. How an apparently failed trial of tools by Silver City supports the counter-factual in circumstances where Mr Kleyn was, as the primary judge found, "working hard to perfect the tool" (at [744]) and yet did not manage to perfect the tool at all, is not apparent.
61 Coretell referred to Mr Barker's evidence that he considered the problems with the tool were minor and resulted from operators doing "silly" things (at [317] and [343]). Coretell said the primary judge must be taken to have accepted this evidence as [651] discloses in which the primary judge said:
Generally speaking I consider that Mr Barker gave honest and reliable evidence and was not at any great pains to colour his evidence. However, while from his point of view he confidently considered that he had produced a product that was ready for market - accepting there remained issues to be resolved - a serious question remains whether his perceptions mean the Court should arrive at this same conclusion on all the evidence. This question and the question whether his evidence should result in a finding that there were no merchantable quality issues with the Camteq tool at material times is considered further below. In the result, taking into account the evidence concerning trialling of the tool in the field, canvassed above, Mr Barker's evidence and Mr Kleyn's evidence - all pointing to more work requiring to be done on the tool - I do not accept that the tool was, in fact, ready for market towards the end of 2006 when the first threat letter was received.
62 Again, apart from the fact that the primary judge does not refer to the evidence of Mr Barker about the problems being only minor and silly as supporting his counter-factual, the finding at [651] is essentially a rejection of this part of Mr Barker's evidence in circumstances where it was Mr Barker who was responsible for developing the tool. That this is so is plain from [794] where the primary judge said:
… I do not accept that the Camteq tool was ready for market or, put another way, of merchantable quality, as of the date of the threats. I have made findings above that discount Mr Barker's confidence in that regard.
63 As such, the rejected evidence of Mr Barker cannot provide a rational foundation for the counter-factual developed by his Honour.
64 Nor can the evidence that Mr Barker continued to make the tools after the threat letters, to which the primary judge referred at [334], assist Coretell. First, that fact speaks against any impedance by reason of the threats. Second, Mr Barker, whilst continuing to work on the tools, still did not resolve the problems within six months or indeed at all.
65 Coretell referred to the evidence of Mr Reynolds as support for the counter-factual. The primary judge made no such reference. Insofar as Mr Reynolds, who was involved in the marketing of the tool but had no involvement in its development, thought that the tool was ready for commercial supply in 2006 (see, for example, at [380]), it is apparent that his Honour must have rejected this evidence as well. Otherwise he could not have found that the tool was not commercially viable as at November 2006 and would not have rejected the contrary evidence of Mr Kleyn and Mr Barker. As with Mr Barker, the rejected evidence of Mr Reynolds cannot provide a rational foundation for the counter-factual developed by his Honour.
66 Coretell referred to the Procept tool once arrangements had been finalised, being developed relatively quickly. The relevance of this, however, depended on there being some meaningful similarity between both Mr Barker as a sole developer and Procept as a company of experienced engineers and between the Camteq and Procept tools. There is no finding as to the first matter. Nor, rationally, could there be. As the primary judge said at [418] Procept had "extensive commercial experience in product design and manufacture". The same could not be said of Mr Barker who was not an engineer and had no previous familiarity with orientation tools (at [233]). As to the second matter, the primary judge's conclusion of similarity at [796] is problematic in and of itself. At [796] the primary judge said:
As to the third assumption, that the Camteq tool and the ORIshot tool were substantially the same, I accept that assumption. There is nothing in the evidence of Mr Maher to suggest any substantial differences and I do not consider the evidence given by Mr Brown to be such that a different view should be adopted. I find they were sufficiently similar in function and design for the Procept tool sales to be a proxy for a theoretical Camteq tool sales profile.
67 However, while Mr Maher said that he was going to compare the two tools and was qualified to do so, as the primary judge recorded at [429]:
Mr Maher also acknowledged that while he suggested in his affidavit that he was going to deal with the similarities and differences between the two tools, he had not actually done that.
68 This being so, there could not be anything in the evidence of Mr Maher suggesting any difference. The absence of such evidence, far from supporting an inference of similarity, supported an inference against Coretell. It had called an expert, qualified to give an opinion, who said he was going to give an opinion, who did not give any opinion. The only inference this left open was that Mr Maher did not consider that he could conclude that the tools were similar. Mr Brown's evidence, to which the primary judge referred at [796], could not be expected to answer evidence that did not exist. Mr Brown had over 20 years' experience in mining and drilling (at [545]). He had noted a number of differences between the Camteq tool and the Procept tool (at [560] to [562]). What the primary judge meant in [796] when he said that Mr Brown's evidence did not lead to a different view from that of Mr Maher who did not "suggest any substantial differences" is unclear given that Mr Maher had not engaged with the task of comparison at all despite saying he was going to do so. In any event, it is sufficient to say that Mr Maher's evidence or non-evidence on the issue could not support the finding in [796] and Mr Brown's evidence was to the contrary of that finding.
69 In other words, it is not possible to identify how the primary judge concluded that the Camteq tool would have been ready for commercial supply within 6 months. That conclusion was "glaringly improbable" and "contrary to compelling inferences" (Robinson Helicopter Company Inc v McDermott [2016] HCA 22; (2016) 331 ALR 550 at [43]) having regard to the primary judge's own findings that:
(1) Mr Kleyn was a driven man who was working hard to get the Camteq tool perfected (at [744] and [748]); and
(2) Mr Barker had kept manufacturing the Camteq tools after the threat letters (at [334]).
70 It is also irreconcilable with Mr Kleyn's evidence that:
(1) The threat letters made him stop marketing and hiring the Camteq tools, not developing the Camteq tools (see above).
(2) He always wanted Mr Barker to keep manufacturing the tools so that Coretell would have sufficient stock on hand once the infringement proceedings were over (at [72]).
71 We are compelled to conclude that the reason the primary judge has made findings about a counter-factual which are "glaringly improbable" and "contrary to compelling inferences" is that the issues which his Honour posed for himself did not include the key question of causation. At [19] his Honour did not pose the question; what damage was sustained as a result of the threats? As noted, the structure of the judgment reflects the questions posed at [19]. Accordingly, nothing in the reasons discloses a focus on the critical concept of what would have occurred but for the threats. Instead, at [748] there is a conclusion that Mr Kleyn was "impeded by the threat letters", which is inconsistent with the balance of his Honour's findings. The conclusion cannot stand.
72 It is also apparent that the reasons for judgment segue from the question "Was the Camteq tool of merchantable quality at material times" to the question "What damage has Coretell sustained" without any analysis of the nature of any "impedance". As noted, it cannot have been impedance of the development of the Camteq tool because this is irreconcilable with the case that Coretell put. Yet this is the basis upon which the primary judge assessed damage, as explained at [795] to [799]. It necessarily follows that the conclusions about damage are themselves unsustainable.